Will Groupon get the Playboy treatment?

Executive’s remarks expected to land company in hot water with SEC

LOS ANGELES (MarketWatch) — Recent remarks by a Groupon Inc. executive about the company being “wildly profitable” just after announcing plans for an initial public offering are sure to bring some sort of regulatory enforcement, attorneys said Tuesday.

While those two words are unlikely to bring about a serious delay in the daily-deal provider’s plans to go public, according to IPO advisers, one question remains: Will Groupon get the Playboy treatment?

It’s not as exciting as it might sound.

Dig deeper into Groupon’s filing

(2:46)

The Groupon IPO may be "on" to raise $750 million, but the daily-deals company is losing money and doesn't make plain what it has and what it owes, so investors have to look at all the numbers involved. Rex Crum reports.

The comments by Groupon’s co-founder and executive chairman, Eric Lefkofsky, surely step outside the Securities Exchange Commission’s comfort zone, lawyers said, and may force Groupon to publish the Bloomberg story in its prospectus, similar to what the SEC did when the founders of Google Inc.
GOOG, -1.10%
consented to an interview with Playboy magazine in 2004.

In the Google-Playboy case, when Sergey Brin and Larry Page were quoted in the iconic men’s magazine, the entire interview became a part of the search giant’s official SEC filing. The regulator required this, reasoning that Google should be held accountable for any public comments it makes.

“Groupon’s lawyers are doing some very hard thinking right now,” said Matthew Swartz, a partner at Pillsbury Winthrop Shaw Pittman in McLean, Va., who specializes in SEC and IPO work. “There will be a consequence, I expect.”

Swartz added that the agency requires a “quiet period” — though the SEC doesn’t use that term — to keep insiders from pumping up the stock. The risk for the company is that it could be held liable if it doesn’t deliver on what it says it can do.

SEC officials would not comment for this story; Groupon representatives also would not comment.

Defending his record in the technology sector, Lefkofsky made statements to Bloomberg News on Friday, a day after the Chicago-based online-coupon firm said it would seek $750 million in public financing. He was asked about his record at two other companies, InnerWorkings Inc.
INWK, +4.17%
and Echo Global Logistics Inc.
ECHO, +3.00%
and whether the money-losing Groupon could swing to a profit.

“I’m going to be in technology for a long time,” he was quoted as saying. “I’m going to start a lot of companies. These are not sham companies. These are great businesses. InnerWorkings is profitable. Echo is profitable. Groupon is going to be wildly profitable.” Read the Bloomberg story.

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While rules were relaxed somewhat in 2005 to allow for more communications between companies headed for public markets and the general investing community, the SEC still watches whether firms are making comments in an effort to prepare the market for their offering, according to Swartz.

Those rule changes tried to incorporate the new world of electronic communications. Since then, there have been few, if any, cases where the SEC has punished a company for talking during an IPO quiet period.

The SEC already has relaxed the rules on written communications during an IPO, said Andrew Thorpe, an IPO-SEC specialist for Morrison & Foerster in San Francisco, who also was an SEC staff attorney who helped amend the rules in 2005.

“In the old days, they would delay the offering 30 days and they would require additional disclosure,” Thorpe pointed out. “More recently, they have not been delaying offerings or imposing a cooling-off period.

“In this case, there should not be a delay. It’s just an embarrassment,” he said, later adding: “At the end of the day, I think the threat of a delay is there. But I don’t think the SEC has been delaying deals since the early 2000s. It should just be a disclosure issue.”

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